Everything is always open to interpretation. Positioning data and investor sentiment indicators especially so.
There’s always going to be someone out there who will remind you that positioning is backward-looking, that it may reflect only part of a multi-leg strategy the purpose of which is ultimately unknowable, and on and on.
As for sentiment surveys, maybe the right questions weren’t asked. Maybe the right questions were asked initially, but those questions weren’t accompanied by the right follow-up questions that, had they been asked, would have given us a more complete picture of what investors “really” think.
It’s always a “yeah but…” kind of thing. Unless of course the data and the indicators support whatever narrative it is the person citing that data and those indicators is trying to push. Then it can all be taken at face value. We’re just as guilty of that as anyone else (probably even more guilty), and to prove how guilty we are in that regard, we’re going to excerpt the following from Goldman and then from Gallup and call it “evidence” of excessive bullishness.
So enjoy reveling in our confirmation bias and don’t forget to laugh at the characterization of inverse VIX ETPs as sources of “stable” carry…
CFTC positioning from asset managers and hedge funds in US equities continues to be quite long – as we discussed before this might be at least in part due to systematic investors such as CTAs, vol target and risk parity due to the low volatility.
At the same time, investors have increased short vol positions in their search for stable carry – the monthly inflow into the VelocityShares Inverse VIX ETF (XIV), which is the largest short VIX ETPs, has been +US$519 mn in August.This followed the temporary pick-up of the VIX during the summer and is the second largest inflow, only surpassed by August 2015, which was also following a large VIX spike.
A new surge of optimism among U.S. investors has pushed the Wells Fargo/Gallup Investor and Retirement Optimism Index to its highest level since September 2000. The index, after rising in every quarter since the start of 2016, leveled off in the second quarter at +124 before rising to its current +138 in the third quarter.
The latest boost in optimism pushes the index almost 100 points higher than the +40 score measured in February 2016. The 98-point hike over the past 18 months is the largest increase in the 20-year history of the index that is not a rebound immediately after a major drop in optimism.